JOHN WHELAN: Ireland in firing line as Trump talks up US trade

Trade figures published in recent weeks by the US Department of Commerce deserve wide coverage, because they have effectively signalled flashing red lights for Ireland, writes John Whelan.

What the figures showed — the largest international trade deficit by the US in nine years — could be the straw in the wind to blow President Donald Trump into accelerating his America First policies to the point of creating a full-blown trade war.

The US international trade gap in goods and services rose to €470bn last year.

And the figures showed things were getting worse because the gap in December was widening, even more compared with previous months.

President Trump sees trade deficits as a sign of economic weakness and claims it is proof of unfair competition by America’s trading partners.

Unfortunately, the EU has been identified by Donald’s tweets as one of the bad guys who doesn’t buy enough from America.

The EU sold €108bn more goods to the US than they bought.

The focus of the Trump administration is, clearly, on the hard manufacturing industries where his cherished rust belt workers earn their living.

US exports of services, which would include commercial activities of Google and Facebook, and other service imports such as banking services and aircraft leasing are by and large in balance between the US and Europe.

The difficulty for Ireland is that whereas we buy more services from the US than we export from America when it comes to goods the deficit is the other way round.

And despite the fact that overall trade with the US is in balance, it is unlikely to help Ireland if the US decides to introduce tariffs on goods exports from Europe.

We are part of the EU trade bloc and, as such, get caught in any trade tariff or quota restrictions that the US may impose.

The European Commission has warned that it will react “swiftly and appropriately” to any threat of a trade war from the US after President Trump appeared to threaten a trade war against the continent.

On the Piers Morgan TV interview last month, speaking after imposing new tariffs on some goods from China, the US president said he had “a lot of problems” with the EU’s trade policy and hinted he might take similar action against the EU.

He said: “We cannot sell our goods there, they are very, very unfair in there trade practices.”

Then, in his first State of the Union address, President Trump promised to “fix bad trade deals and negotiate new ones”.

Donald Trump and his wife Melania on a recent trip to China

His administration recently placed tariffs on imported solar panels from China and washing machines from South Korea, sparking concern the US would start trade wars.

The EU falls well behind China in the list of the trading problems that the US wishes to “fix”.

The US deficit with China hit a record €312bn in 2017, and the goods gap with Mexico rose to €76bn.

Mr Trump takes the simplistic view that when it comes to international trade the “numbers tell the story”.

He’s been in office a year now and the trade deficit is up. This will jar with his view of international trade.

Many economists say it will be tough to reverse trade imbalances with the EU or China without measures that change the balance between investment and consumption in each country.

Unfortunately, in a likely trade war with the EU, Ireland may lose out both US investment and purchases from companies based here.

In a strange twist of economics, the President Trump-promoted tax cuts passed late last year could exacerbate the trade shortfall by boosting the dollar, making US exports more expensive, and ramping up domestic demand, which would also spur more imports.

John Whelan is a leading consultant and on Irish and international trade.